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Mistakes to Avoid

If you are considering bankruptcy, then you should avoid the following:

1.  Paying a family member or transferring property.  Don't pay any money to a family member (related by blood or marriage, and including distant cousins) without first asking a lawyer.  Any amount paid or property transferred to family in the year (sometimes longer) before the case is filed must be reported, under oath and penalty of perjury, on your bankruptcy forms.  Any such payment or transfer can be recovered from the family member by a bankruptcy trustee.  You don't want to involve your family in your bankruptcy case.  Similarly, don't transfer property out of your name out of fear you will lose the property in bankruptcy.  Instead, talk to your attorney, who can tell you if there are legal ways to avoid loss of property.

2. Charging up your credit cards.  Charging on a credit card or borrowing from any other lender when you know you cannot repay is considered fraud.  The creditor can object to your release from that debt in your bankruptcy case, and cause you additional legal fees.  Stop charging if you know you're in financial trouble.

3.  Borrowing against or cashing your pension plan.  Chances are, the debts you want to catch up or partially pay would be eliminated in bankruptcy, and you would have preserved your retirement plan for your retirement.  You also may need to pay taxes on any distribution from your pension.  Talk to a lawyer first.

4.  Borrowing against your house.  Unless this move completely fixes your financial problems, this is almost always a bad move.  If you can't afford the new mortgage, then you are just as poor as before, but now you will lose your house instead of keeping it in a bankruptcy case.  Run this by an attorney before you act.

5.  Keeping your lawyer in the dark.  You hire a lawyer for advice.  Your lawyer can't do his or her job right without complete information.  In many cases, your lawyer can find perfectly legal ways to deal with your problems.  Remember the penalties you face for not telling the truth on your forms: years in prison and massive fines.  Don't risk it.  In any case, your lawyer is sworn to secrecy.  The worst that can happen from telling your lawyer the truth is he or she may decline to represent you, depending on the nature of problem.

6.  Taking payday loans, especially "online" payday loans, or writing bad checks.  Checks are harder to deal with in bankruptcy.  The holder of the check can continue to try  to cash it even after you file, which then requires you to place stop-payment orders on the checks with your bank, or even close your bank account.  Ordinary bad checks (not payday loans) can refer the matter to the local prosecutor, and bankruptcy offers no protection against criminal prosecution.

7.  Waiting too long to file your case.  Waiting will lead to problems you could have avoided, such as court judgments, garnishments, and further harm to your credit rating.  Frequently, persons needing bankruptcy relief wait until they have spent their last dollars in a hopeless effort to stay current or catch up on their debts, or have been garnished, and as a result have no money available to hire an attorney.  Don't let this happen to you.  Be realistic with yourself about your ability to pay.  You will avoid months or years of stress, and start fresh sooner.

8.  Filing too soon.  Sometimes, the desire to file and start fresh is strong.  Your lawyer may advise you, however, to wait.  Filing too soon may cause you to lose assets, like pending tax refunds.  There may be other good reasons to wait.  It is never too soon, however, to consult with a lawyer.

9.  Waiting too long to talk to a lawyer.  While it is natural and understandable that people in debt will treat bankruptcy as the last resort, it should not be the last resort.  It shouldn't be the first resort, either.  Bankruptcy, as bad as it is for your credit (at least in the short term) and shameful (more for some than others), is better, in many cases, than the alternatives, such as debt settlement scams, constant debt collection calls, suits, garnishments, and doing nothing.  Bankruptcy now may mean you have decent credit in a few years, whereas doing nothing will likely mean you are just as poor and your credit just as bad several years from now.  You will not know your options if you don't seek advice from a lawyer.  You should also be seeking advice from a reputable, local debt counselor, to compare your options.

 
   
   
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Iowa City: (319) 338-9852  Muscatine: (563) 263-8801

email: steve@iclawfirm.com

Steve Klesner of Johnston, Stannard, Klesner, Burbidge & Fitzgerald, P.L.C.